UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ----to---- COMMISSION FILE NUMBER 1-1361 Tootsie Roll Industries, Inc. (Exact Name of Registrant as Specified in its Charter) VIRGINIA 22-1318955 (State of Incorporation)(I.R.S. Employer Identification No.) 7401 South Cicero Avenue, Chicago, Illinois 60629 (Address of Principal Executive Offices) (Zip Code) 773-838-3400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer X Accelerated filer _ Non-accelerated filer __ Smaller reporting company ___ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No X Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (June 28, 2008) Class Outstanding Common Stock, $.69 4/9 par value 35,659,234 Class B Common Stock, $.69 4/9 par value 19,405,582 TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES JUNE 28, 2008 INDEX Page No. Part I - Financial Information Item 1. Financial Statements: Condensed Consolidated Statements of Financial Position 2 Condensed Consolidated Statements of Earnings, Comprehensive Earnings and Retained Earnings 3 Condensed Consolidated Statements of Cash Flows 4 Notes to Condensed Consolidated Financial Statements 5-5C Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-6E Item 3. Quantitative and Qualitative Disclosures About Market Risk 6E Item 4. Controls and Procedures 6E Part II - Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 7 Item 4. Submission of Matters to a Vote of Security Holders 7 Item 6. Exhibits 7A Signatures 7A Certifications 7B-7D This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See "Information Regarding Forward- Looking Statements" under Part I - Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q. <TABLE> PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands of dollars) (UNAUDITED) ASSETS June 28, June 30, Dec. 31, CURRENT ASSETS 2008 2007 2007__ <s> <c> <c> <c> Cash & cash equivalents $ 31,251 $ 39,761 $ 57,606 Investments 15,778 19,596 41,307 Trade accounts receivable, Less allowances of $2,081, $2,090 & $2,287 25,120 27,396 32,371 Other receivables 3,487 2,850 2,913 Inventories, at cost Finished goods & work in process 74,858 75,333 37,031 Raw material & supplies 27,683 25,735 20,371 Prepaid expenses 2,806 5,114 6,551 Deferred income taxes 1,585 7,150 1,576 Total current assets 182,568 202,935 199,726 PROPERTY, PLANT & EQUIPMENT, at cost Land 19,417 19,402 19,398 Buildings 88,286 87,273 88,225 Machinery & equipment 279,802 263,034 270,070 387,505 369,709 377,693 Less-accumulated depreciation 184,085 169,100 176,292 Net property, plant and equipment 203,420 200,609 201,401 OTHER ASSETS Goodwill 73,237 73,237 73,237 Trademarks 189,024 189,024 189,024 Investments 73,217 59,172 65,993 Split dollar life insurance 74,944 75,058 74,944 Investment in joint venture 11,030 9,207 8,400 421,452 405,698 411,598 Total assets $807,440 $809,242 $812,725 -2- (The accompanying notes are an integral part of these statements.) </TABLE> <TABLE> <CAPTION> (in thousands except per share data) (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY June 28, June 30, Dec. 31, CURRENT LIABILITIES 2008 2007 2007__ <s> <c> <c> <c> Accounts payable $ 26,983 $ 18,817 $ 11,572 Dividends payable 4,425 4,401 4,344 Accrued liabilities 36,829 38,027 42,056 Total current liabilities 68,237 61,245 57,972 NON-CURRENT LIABILITIES Deferred income taxes 35,794 36,504 35,940 Postretirement health care and life insurance benefits 13,847 13,201 13,214 Industrial development bonds 7,500 7,500 7,500 Liability for uncertain tax positions 21,009 19,273 20,056 Deferred compensation and other liabilities 36,934 39,398 39,813 Total non-current liabilities 115,084 115,876 116,523 Total liabilities 183,321 177,121 174,495 SHAREHOLDERS' EQUITY Common Stock, $.69-4/9 par value- 120,000 shares authorized; 35,659, 36,099 & 35,404, respectively, issued 24,763 25,069 24,586 Class B common stock, $.69-4/9 par value- 40,000 shares authorized; 19,406, 18,916 & 18,892, respectively, issued 13,476 13,136 13,120 Capital in excess of par value 472,067 474,467 457,491 Retained earnings 126,589 133,894 156,752 Accumulated other comprehensive loss (10,784) (12,453) (11,727) Treasury stock (at cost)- 65, 63 & 63 shares, respectively (1,992) (1,992) (1,992) Total shareholders' equity 624,119 632,121 638,230 Total liabilities and shareholders' equity $807,440 $809,242 $812,725 -2A- (The accompanying notes are an integral part of these statements.) </TABLE> <TABLE> TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS (in thousands except per share amounts) (UNAUDITED) 13 WEEKS ENDED June 28, 2008 & June 30, 2007 <s> <c> <c> Net product sales $101,591 $101,901 Rental and royalty revenues 1,023 1,282 Total revenues 102,614 103,183 Product cost of goods sold 68,741 67,476 Rental and royalty costs 234 294 Total costs 68,975 67,770 Product cost of goods sold 32,850 34,425 Rental and royalty gross margins 789 988 Total gross margin 33,639 35,413 Selling, marketing and administrative expenses 23,188 24,166 Earnings from operations 10,451 11,247 Other income, net 653 3,054 Earnings before income taxes 11,104 14,301 Provision for income taxes 3,858 4,075 Net earnings 7,246 10,226 Other comprehensive income, before tax: Foreign currency translation adjustments 647 290 Unrealized losses on securities (216) (23) Unrealized losses on derivatives (856) (169) Other comprehensive (loss) income, before tax (425) 98 Income tax benefit related to items of other comprehensive income 399 72 Other comprehensive (loss) income, net of tax (26) 170 Comprehensive earnings $ 7,220 $ 10,396 Retained earnings at beginning of period $123,744 $128,064 Net earnings 7,246 10,226 Cash dividends (4,401) (4,396) Retained earnings at end of period $126,589 $133,894 Net earnings per share $0.13 $0.18 Dividends per share * $0.08 $0.08 Average number of shares outstanding 55,000 56,745 *Does not include 3% stock dividend to shareholders of record on 3/10/08 and 3/09/07. -3- (The accompanying notes are an integral part of these statements.) </TABLE> <TABLE> <CAPTION> TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE EARNINGS AND RETAINED EARNINGS (in thousands except per share amounts) (UNAUDITED) 26 WEEKS ENDED June 28, 2008 & June 30, 2007 <s> <c> <c> Net product sales $191,932 $194,815 Rental and royalty revenues 2,115 2,791 Total revenues 194,047 197,606 Product cost of goods sold 129,370 127,212 Rental and royalty costs 516 766 Total costs 129,886 127,978 Product gross margin 62,562 67,603 Rental and royalty gross margins 1,599 2,025 Total gross margin 64,161 69,628 Selling, marketing and administrative expenses 43,238 45,222 Earnings from operations 20,923 24,406 Other (loss) income, net (587) 4,528 Earnings before income taxes 20,336 28,934 Provision for income taxes 6,637 8,897 Net earnings 13,699 20,037 Other comprehensive income, before tax: Foreign currency translation adjustments 3,563 - Unrealized (losses) gains on securities (2,360) 12 Unrealized (losses) gains on derivatives (282) 118 Other comprehensive income, before tax 921 130 Income tax benefit (expense) related to items of other comprehensive income 20 (47) Other comprehensive income, net of tax 941 83 Comprehensive earnings $ 14,640 $ 20,120 Retained earnings at beginning of period $156,752 $169,233 Net earnings 13,699 20,037 Cash dividends (8,697) (8,691) Stock dividends - 3% (35,165) (46,685) Retained earnings at end of period $126,589 $133,894 Net earnings per share $0.25 $0.35 Dividends per share * $0.16 $0.16 Average number of shares outstanding 55,310 56,812 *Does not include 3% stock dividend to shareholders of record on 3/10/08 and 3/09/07. -3A- (The accompanying notes are an integral part of these statements.) </TABLE> <TABLE> TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) (UNAUDITED) 26 WEEKS ENDED June 28, 2008 & June 30, 2007 CASH FLOWS FROM OPERATING ACTIVITIES: <s> <c> <c> Net earnings $ 13,699 $ 20,037 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 8,005 7,796 Amortization of marketable securities 202 312 Sales (purchases) of trading securities 97 (326) Changes in operating assets and liabilities: Accounts receivable 7,429 7,679 Other receivables (856) 1,202 Inventories (44,872) (37,111) Prepaid expenses and other assets 3,789 1,019 Accounts payable and accrued liabilities 10,091 (61) Income taxes payable and deferred 910 8,920 Postretirement health care and life insurance benefits 633 619 Deferred compensation and other liabilities (1,051) (392) Other 224 66 Net cash (used in) provided by operating activities (1,700) 9,760 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (9,742) (5,506) Purchase of available for sale securities (25,456) (15,104) Sale and maturity of available for sale securities 39,216 13,463 Net cash provided by (used in) investing activities 4,018 (7,147) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid in cash (8,738) (8,756) Shares repurchased and retired (19,935) (9,825) Net cash used in financing activities (28,673) (18,581) Decrease in cash and cash equivalents (26,355) (15,968) Cash and cash equivalents-beginning of year 57,606 55,729 Cash and cash equivalents end of quarter $ 31,251 $ 39,761 Supplemental cash flow information: Income taxes paid (refunded), net $ 4,531 $ (300) Interest paid $ 148 $ 319 Stock dividend issued $ 35,043 $ 46,520 (The accompanying notes are an integral part of these statements.) -4- </TABLE> TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 28, 2008 (in thousands except per share amounts) (UNAUDITED) Note 1 - Foregoing data has been prepared from the unaudited financial records of Tootsie Roll Industries, Inc. and Subsidiaries (the Company) and in the opinion of management all adjustments necessary for a fair statement of the results for the interim period have been reflected. All adjustments were of a normal and recurring nature. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007. Note 2 - Average shares outstanding for the 26 week period ended June 28, 2008 reflects stock repurchases and subsequent retirements of 839 shares for $19,934 and a 3% stock dividend distributed on April 10, 2008. Average shares outstanding for the 26 week period ended June 30, 2007 reflects stock repurchases and subsequent retirements of 346 shares for $9,825 and a 3% stock dividend distributed on April 12, 2007. Note 3 - Results of operations for the period ended June 28, 2008 are not necessarily indicative of results to be expected for the year to end December 31, 2008 because of the seasonal nature of the Company's operations. Historically, the third quarter has been the Company's largest sales quarter due to Halloween sales. Note 4 - The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company remains subject to examination by U.S. federal and state and foreign tax authorities for the years 2004 through 2006. With few exceptions, the Company is no longer subject to examinations by tax authorities for years 2003 and prior. Note 5 - New Accounting Pronouncements In September 2006, the FASB issued statement No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for financial instruments measured at fair value on recurring and nonrecurring basis. Although the adoption of SFAS 157 did not materially impact its financial condition, results of operations, or cash flows, the Company is now required to provide additional disclosures as part of its financial statements. SFAS 157 establishes a three-tier fair value hierarchy, which prior- itizes the inputs used in measuring fair value. These tiers include: Level 1, inputs defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; Level 2 inputs defined as inputs other than quoted prices included within Level 1 that -5- are observable for the asset or liability, either directly or indirectly; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. In February 2008, the FASB issued FASB Staff Position FAS 157-2, "Effective Date of FASB Statement No. 157" (FSP SFAS 157-2). FSP SFAS 157-2 delays the effective date SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The non-financial assets and non-financial liabilities for which the Company has not applied the fair value provisions of SFAS 157 include goodwill and other intangible assets. The effective date for application of SFAS 157 to non-financial assets and non-financial liabilities will be fiscal and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS 157 for non-financial assets and non-financial liabilities on our financial statements. As of June 28, 2008, the Company held certain financial assets that are required to be measured at fair value on a recurring basis. These included derivative hedging instruments related to the purchase of certain raw materials, investments in trading securities and available for sale securities, including auction rate securities (ARS), and investments associated with a foreign benefit plan, which were deemed immaterial for further discussion. The Company's available for sale and trading securities principally consist of municipal bonds and mutual funds that are publicly traded. As of June 28, 2008, the Company's long-term investments include $11,043 of Jefferson County Alabama Sewer Revenue Refunding Warrants which is an ARS that is classified as an available for sale security. Due to recent events in the credit markets, as well as events related to Jefferson County and its bond insurance carrier, Financial Guaranty Insurance Company (FGIC), the auction for this ARS failed during the first half of 2008. As such, the Company estimated the fair value of this ARS utilizing a valuation model with Level 3 inputs as of June 28, 2008. This valuation model considered, among other items, the credit risk of the collateral underlying the ARS, the credit risk of the bond insurer, interest rates, and the amount and timing of expected future cash flows including our assumption about the market expectation of the next successful auction. As of June 28, 2008, the Company has concluded that the market decline in fair value of its Jefferson County ARS is temporary because the Company continues to receive interest on its ARS on a timely basis, there has been no default on this ARS, and this ARS is insured by FGIC. The Company also has the intent and ability to hold this ARS until recovery. We expect to receive all contractual cash flows. Therefore, the Company has recorded an unrealized loss of $2,507 (original cost and par value was $13,550) to accumulated other comprehensive income as of June 28, 2008. The Company has also classified this ARS as non-current and has included it in long-term Investments on the unaudited Condensed Consolidated Balance Sheet at June 28, 2008 because the Company believes that the current condition of the auction rate securities market, as well as the financial conditions of Jefferson County and FGIC, may take more than twelve months to improve. -5A- <TABLE> Any future fluctuation in fair value related to this ARS that the Company deems to be temporary, including any recoveries of previous write-downs, would be recorded to accumulated other comprehensive income. If the Company determines that any future valuation adjustment is other than temporary, it would record an impairment charge to earnings as appropriate. The Company's assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 at June 28, 2008, were as follows: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets Significant for Other Significant Identical Observable Unobservable (in thousands) Assets Inputs Inputs Description 6/28/2008 (Level 1) (Level 2) (Level 3) <s> <c> <c> <c> <c> Auction Rate Security (ARS) $ 11,043 $ - $ - $ 11,043 Available-for-sale Security 47,094 47,094 - Excluding ARS Commodity Derivatives 308 308 - - Trading Securities 30,858 30,858 - - Total assets measured at fair value $ 89,303 $ 31,166 47,094 $ 11,043 Available for sale securities which utilize Level 2 inputs consist primarily of municipal bonds, which trade in markets that are not considered to be active, but are valued based on quoted market prices or alternative pricing sources with reasonable levels of price transparency. Based on market conditions, the Company changed its valuation methodology for ARS to a discounted cash flow analysis during first quarter 2008. Accordingly, these securities changed from Level 2 to Level 3 within SFAS 157's hierarchy since the Company's initial adoption of SFAS 157 at January 1, 2008. The following table presents the Company's financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in SFAS 157 at June 28, 2008: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Auction Rate Security (in thousands) Balance at 1/1/2008 $ - Transfers to Level 3 27,250 Included in other comprehensive income (2,507) Purchases and (sales) net (13,700) Balance at 6/28/2008 $ 11,043 -5B- </TABLE> In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment to FASB Statement No. 115" (SFAS No. 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 became effective beginning with our first quarter of 2008. The Company has chosen not to elect the fair value option for our existing financial instruments. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" (SFAS 161), which requires enhanced disclosures for derivative and hedging activities. SFAS 161 will become effective beginning with our first quarter of 2009. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our Consolidated Financial Statements. -5C- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands except per share amounts) The following is management's discussion of the Company's operating results and analysis of factors that have affected the accompanying Condensed Consolidated Statement of Earnings. NET PRODUCT SALES Net change in Second Quarter, 2008 Second Quarter vs. 2008 2007 Second Quarter, 2007 $101,591 $101,901 (0.3) % First Half, 2008 First Half vs. 2008 2007 First Half, 2007 $191,932 $194,815 (1.5) % Second quarter 2008 net product sales were $101,591 compared to $101,901 in second quarter 2007, a decrease of $310 or 0.3%. First half 2008 net product sales of $191,932 decreased $2,883 or 1.5% from first half 2007 net product sales of $194,815. The sales decline in the first half 2008 reflects the overall challenging economic conditions and competitive factors during the period. PRODUCT COST OF GOODS SOLD: Second Quarter Percentage of Net Product Sales 2008 2007 2nd Qtr. 2008 2nd Qtr. 2007 $68,741 $67,476 67.7% 66.2% First Half Percentage of Net Product Sales 2008 2007 1st Half 2008 1st Half 2007 $129,370 $127,212 67.4% 65.3% Product cost of goods sold as a percentage of net product sales increased from 66.2% in the second quarter 2007 to 67.7% in second quarter 2008, and from 65.3% in first half 2007 to 67.4% in first half 2008. These increases in product cost of goods sold as a percentage of product net sales are primarily the result of higher input costs relating to major ingredients, packaging materials, and less favorable foreign exchange rates with regard to products manufactured in Canada. Increased plant overhead spending against lower sales volumes also contributed to increased product cost of goods sold as a percent of net product sales. The Company's ability to forecast the direction and scope of changes to its major input costs is currently impacted by significant volatility in crude oil, corn, soybean and sugar markets. The prices of these commodities are influenced by increasing global demand; changes in farm policy, including mandates for bio- fuels; and fluctuations in the U.S. dollar relative to dollar-denominated commodities in world markets. The Company believes that its competitors face the same or similar challenges. -6- In order to address the impact of rising input and other costs, the Company periodically reviews each item in its product portfolio to ascertain if price increases, weight declines (indirect price increase) or other actions may be taken. This review includes an evaluation of the risk factors relating to market place acceptance of such changes and their potential effect on future sales volumes. In addition, the estimated cost of packaging modifications associated with weight changes is evaluated. The Company also maintains ongoing cost reduction programs whereby cost savings initiatives are encouraged and progress monitored. The Company is not able to accurately predict the outcome of these cost savings initiatives and their effects on its future results. SELLING, MARKETING AND ADMINISTRATIVE EXPENSES: Second Quarter Percentage of Net Product Sales 2008 2007 2nd Qtr. 2008 2nd Qtr. 2007 $23,188 $24,166 22.8% 23.7% First Half Percentage of Net Product Sales 2008 2007 1st Half 2008 1st Half 2007 $43,238 $45,222 22.5% 23.2% Second quarter 2008 selling, marketing and administrative expenses were $23,188 compared to $24,166 in second quarter 2007, a decrease of $978 or 4.0%. These same expenses decreased from $45,222 in first half 2007 to $43,238 in first half 2008, a decrease of $1,984 or 4.4%. The aforementioned decreases in expenses for both periods primarily reflect the change in net product sales, as well as a decline in deferred compensation expense, which is discussed below. As a percentage of net product sales, such operating expenses decreased slightly from 23.7% in second quarter 2007 to 22.8% in second quarter 2008 and from 23.2% in first half 2007 to 22.5% in first half 2008, principally reflecting the decrease in deferred compensation expense. However, the Company was adversely affected by higher freight, delivery and warehousing expenses, principally reflecting higher fuel costs, during both second quarter and first half 2008 compared to the corresponding periods in the prior year. Second quarter 2008 earnings from operations were $10,451 compared to $11,247 in second quarter 2007, a decrease of $796 or 7.1%. First half 2008 earnings from operations were $20,923 compared to $24,406 a decrease of $3,483 or 14.3%. The decline in operating earnings during both second quarter and first half 2008 were primarily the result of lower sales volume and higher input costs as discussed above. NET EARNINGS: Second Quarter, 2008 Second Quarter vs. 2008 2007 Second Quarter, 2007 $ 7,246 $10,226 (29.1) % First Half, 2008 First Half vs. 2008 2007 First Half, 2007 $13,699 $20,037 (31.6) % -6A- Second quarter 2008 net earnings were $7,246 compared to second quarter 2007 net earnings of $10,226, a $2,980 or 29.1% decrease. Second quarter 2008 earnings per share were $0.13, compared to $0.18 per share in the prior year comparative period, a decrease of $0.05 or 27.8%. First half 2008 net earnings were $13,699 compared to first half 2007 net earnings of $20,037, a $6,338 or 31.6% decrease. First half net earnings per share were $0.25 in 2008 compared to $0.35 per share in 2007, a decrease of $0.10 per share or 28.6%. Other income (loss), net was $653 in second quarter 2008 compared to $3,054 in second quarter 2007. Other income (loss), net in second quarter 2008 includes $79 of investment gains on trading securities relating to deferred compensation plans. However, other income (loss), net in second quarter 2007 includes $1,476 of investment gains on trading securities relating to such deferred compensation plans. Other income (loss), net was ($587) in first half 2008 compared to $4,528 in first half 2007. Other income (loss), net in first half 2008 includes $1,890 of investment losses on trading securities relating to deferred compensation plans. However, other income (loss), net in first half 2007 includes $1,928 of investment gains on trading securities relating to such deferred compensation plans. These second quarter and first half 2008 losses resulted in a corresponding decrease in deferred compensation expense included in aggregate cost of products sold and selling, marketing and administrative expenses for first half 2008. However, second quarter and first half 2007 gains resulted in a corresponding increase in deferred compensation expense included in aggregate cost of products sold and selling, marketing and administrative expenses for the corresponding 2007 periods. The consolidated effective income tax rate increased from 28.5% in second quarter 2007 to 34.9% in second quarter 2008 and from 30.9% in first half 2007 to 32.7% in first half 2008. This increase principally reflects higher foreign taxes and resulting higher overall effective rate. In addition to the factors discussed above, earnings per share benefited from fewer shares outstanding as a result of the Company's share repurchases in 2007 and 2008. LIQUIDITY AND CAPITAL RESOURCES: The Company's current ratio (current assets divided by current liabilities) was 2.7 to 1 as of the end of second quarter 2008 as compared to 3.3 to 1 as of the end of second quarter 2007 and 3.4 to 1 as of the end of fourth quarter 2007. Net working capital was $114,331 as of the end of second quarter 2008 as compared to $141,690 and $141,754 as of the end of second quarter 2007 and fourth quarter 2007, respectively. The aforementioned net working capital amounts include total cash and cash equivalents and short-term investments which aggregated $47,029 as of the end of second quarter 2008 compared to $59,357 and $98,913, as of the end of second quarter 2007 and fourth quarter 2007, respectively. In addition, long-term investments, principally debt securities comprising municipal bonds, were $73,217 (includes $11,043 of Jefferson County auction rate securities discussed in Note 5 to the accompanying Condensed Consolidated Financial Statements) as of the end of second quarter 2008, as compared to $59,172 and $65,993 as of the end of second quarter 2007 and fourth quarter 2007, respectively. Aggregate cash and cash equivalents and short and long-term investments were $120,246, $118,529, $164,906, respectively for second quarter ended 2008, second quarter 2007 and fourth quarter 2007, respectively. Except for the Jefferson County auction rate securities referenced above, investments in municipal bonds and other debt securities that matured during first half 2008 and 2007 were generally used to purchase the Company's common stock or were replaced with debt securities of similar maturities. -6B- Net cash used in operating activities was $1,700 for first half 2008, as compared to net cash provided by operating activities of $9,760 for first half 2007. The aforementioned change in net cash (used in) provided by operating activities principally reflects the $6,338 decline in net earnings for the comparative periods, and the timing of payments and cash flows relating to inventories, accounts payable and accrued liabilities, and income taxes payable and deferred. Capital expenditures for first half 2008 and 2007 were $9,742 and $5,506, respectively. Capital expenditures for the 2008 year are anticipated to be generally in line with historical annualized spending, and are to be funded from the Company's cash flow from operations and internal sources. Cash dividends paid in first half 2008 and 2007 were $8,738 and $8,756, respectively. During first half 2008, the Company also purchased and retired $19,935 of its shares of common stock compared to $9,825 during the same period of the previous year. NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued statement No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for financial instruments. Although the adoption of SFAS 157 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements. SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, inputs defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; Level 2 inputs defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. In February 2008, the FASB issued FASB Staff Position FAS 157-2, "Effective Date of FASB Statement No. 157" (FSP SFAS 157-2). FSP FAS 157-2 delays the effective date SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The non-financial assets and non- financial liabilities for which the Company has not applied the fair value provisions of SFAS 157 include goodwill and other intangible assets. The effective date for application of SFAS 157 to non-financial assets and non- financial liabilities will be fiscal and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS 157 for non-financial assets and non-financial liabilities on our financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment to FASB Statement No. 115," (SFAS No. 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 became effective beginning with our first quarter of 2008. We have chosen not to adopt the provisions of SFAS 159 for our existing financial instruments. -6C- In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"), which requires enhanced disclosures for derivative and hedging activities. SFAS 161 will become effective beginning with our first quarter of 2009. Early adoption is permitted. We are currently evaluating the impact of this standard on our Consolidated Financial Statements. INFORMATION REGARDING FORWARD-LOOKING STATEMENTS This discussion and certain other sections of this Form 10-Q contain forward- looking statements that are based largely on the Company's current expectations and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as "anticipated," "believe," "expect," "intend," "estimate," "project," and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company's control, including without limitation, the following: (i) significant competitive activity, including advertising, promotional and price competition, and changes in consumer demand for the Company's products; (ii) fluctuations in the cost and availability of various ingredients and packaging materials; (iii) inherent risks in the marketplace, including uncertainties about trade and consumer acceptance and seasonal events such as Halloween; (iv) the effect of acquisitions on the Company's results of operations and financial condition; (v) the effect of changes in foreign currencies on the Company's foreign subsidiaries operating results, and the effect of the Canadian dollar on products manufactured in Canada and marketed and sold in the United States in U.S. dollars; (vi) the Company's reliance on third-party vendors for various goods and services; (vii) the Company's ability to successfully implement new production processes and lines; (viii) the effect of changes in assumptions, including discount rates, sales growth and profit margins, and the capability to pass along higher ingredient and other input costs through price increases, relating to the Company's impairment testing and analysis of its goodwill and trademarks; (ix) changes in the confectionery marketplace including actions taken by major retailers and customers; (x) customer and consumer response to marketing programs and price and product weight adjustments, and new products; (xi) dependence on significant customers, including volume and timing or purchases and availability of shelf space; (xii) increases in input costs, including ingredients, packaging materials, energy and fuel costs related to freight and delivery, that cannot be passed on to customers through increased prices due to competitive reasons; (xiii) any significant labor stoppages, strikes or production interruptions; (xiv) changes in governmental laws and regulations including taxes and tariffs; (xv) changes in the auction rate securities markets and issuing municipalities and their insurers. In addition, the Company's results may be affected by general factors, such as economic conditions, political developments, currency exchange rates, interest and inflation rates, accounting standards, taxes, and laws and regulations affecting the Company in markets where it competes and those factors described in Part 1, Item 1A "Risk Factors" and elsewhere in the Company's Annual Report on Form 10-K and in other Company filings, including quarterly reports on Form 10-Q, with the Securities and Exchange Commission. -6D- The risk factors identified and referred to above are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward- looking statement. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made only as of the date of this report. The Company undertakes no obligation to update such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to various market risks, including fluctuations in sugar, corn syrup, edible oils, including soybean oil, cocoa, milk and whey, dextrose, gum base ingredients, packaging and fuel costs. The Company is exposed to exchange rate fluctuations in the Canadian dollar which is the currency used for a portion of the raw material and packaging material costs and operating expenses at its Canadian plants. The Company invests in securities with maturities of up to three years, the majority of which are held to maturity, which limits the Company's exposure to interest rate fluctuations. Except for the Jefferson County auction rate security discussed above, there has been no material change in the Company's market risks that would significantly affect the disclosures made in the Form 10-K for the year ended December 31, 2007. Item 4. CONTROLS AND PROCEDURES Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Company have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 28, 2008 and, based on their evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. There has been no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended June 28, 2008 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. -6E- <TABLE> PART II - OTHER INFORMATION TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Approximate Dollar (a) Total (b) Average Shares Value of Shares that Number of Price Paid per Purchased as Part of May Yet Be Purchased Shares Share Publicly Announced Plans Under the Plans Period Purchased Or Programs or Programs_____ <s> <c> <c> <c> <c> MAR 30 TO JUN 28 NONE NONE NOT APPLICABLE NOT APPLICABLE While the Company does not have a formal or publicly announced stock repurchase program, the Company's board of directors periodically authorizes a dollar amount for share repurchases. The treasurer executes share repurchase transactions according to these guidelines. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders of the Company, held on May 5, 2008, the following number of votes were cast for the matters indicated: 1. For the election of five directors of the Company by the holders of Common Shares and Class B Common Shares voting together: Broker Nominee For Withheld Abstain Non-Vote <s> <c> <c> <c> <c> Melvin J. Gordon 209,447,980 9,148,627 -0- -0- Ellen R. Gordon 209,453,475 9,143,132 -0- -0- Lana Jane Lewis-Brent 214,719,557 3,877,050 -0- -0- Barre A. Siebert 214,859,743 3,736,864 -0- -0- Richard P. Bergeman 215,405,014 3,191,593 -0- -0- 2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as auditors for the fiscal year 2008: Broker For Withheld Against Non-Vote Common Shares and Class B Common Shares voting together 215,835,633 2,637,169 -0- -0- No other matters were submitted to a vote by ballot at the 2008 Annual Meeting. -7- </TABLE> Item 6. EXHIBITS Exhibits 31.1 and 31.2 - Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOOTSIE ROLL INDUSTRIES, INC. Date: Aug. 6, 2008 BY:/S/MELVIN J. GORDON Melvin J. Gordon Chairman of the Board Date: Aug. 6, 2008 BY:/S/G. HOWARD EMBER, JR. G. Howard Ember, Jr. Vice President Finance -7A- Exhibit 31.1 CERTIFICATION I, Melvin J. Gordon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the state- ments made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial infor- mation included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such dis- closure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: Aug. 6, 2008 By: /S/MELVIN J. GORDON Melvin J. Gordon Chairman and Chief Executive Officer -7B- Exhibit 31.2 CERTIFICATION I, G. Howard Ember, Jr. certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tootsie Roll Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the state- ments made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial infor- mation included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such dis- closure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: Aug. 6, 2008 By: /S/G. HOWARD EMBER, JR. G. Howard Ember, Jr. Vice President Finance and Chief Financial Officer -7C- Exhibit 32 Certificate Pursuant to Section 1350 of Chapter 63 Of Title 18 of the United States Code Each of the undersigned officers of Tootsie Roll Industries, Inc. Certifies that (i) the Quarterly Report on Form 10-Q of Tootsie Roll Industries, Inc. for the quarterly period ended June 28, 2008 (the Form 10-Q) fully complies with the requirements of secton 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Tootsie Roll Industries, Inc. and its subsidiaries. Dated: Aug. 6, 2008 /S/MELVIN J. GORDON Melvin J. Gordon Chairman and Chief Executive Officer Dated: Aug. 6, 2008 /S/G. HOWARD EMBER, JR. G. Howard Ember, Jr. V.P. Finance and Chief Financial Officer -7D-